The cost to take out a federal student loan will go up this year.
The interest rate for undergraduate student loans will rise to 5.045% for the 2018-2019 academic year, up from 4.45% last year. For federal Stafford loans for graduate students — which have a limit of $20,500 per year for most graduate students — the interest rate will rise to 6.595%, up from 6% last year. The interest rates on PLUS loans, which allow parents and graduate students to borrow up to the cost of attendance of a program, will jump to 7.595%, up from 7% last year.
The interest rate hikes will only affect borrowers taking out new loans for the coming year, which they can begin doing on July 1. The federal student loan interest rates are determined each year based on the outcome of the 10-year Treasury auction in May.
Given that the U.S. Federal Reserve has indicated it plans to continue to increase interest rates, it’s likely that the cost to borrow from the federal government will continue to go up. The outcome of the 10-year Treasury auction is influenced by the interest rate set by the Fed. Students enrolling for the first time this fall “will have higher costs than people who are graduating,” said Mark Kantrowitz, a financial aid expert and the publisher of Savingforcollege.com.
Borrowers who already have federal student loans don’t need to worry about the rate hike, however. Federal student loan interest rates are fixed, so if you took out a loan with a lower rate, you’ll be able to keep it. Unfortunately for new borrowers, there’s no way for them to access those lower rates.
Still, for most borrowers the rate hike won’t mean too much, Kantrowitz added. Borrowers with the average debt of college graduates, which hovers are $37,000, will see their monthly payments go up by a few dollars every month if they’re paying the debt back on a 10-year standard repayment plan, he said.
